Officials Could Lose Thousands If Benefits Judged Illegal

Friday, August 26, 2005 | Update, Aug. 27, 2005: Click to see how city officials’ retirements could be affected by Aguirre’s legal challenges.

Former Mayor Dick Murphy and two ex-councilmen who were convicted of corruption have registered as retirees with the city’s embattled pension system and will draw upgraded benefits from the retirement plan at the heart of San Diego’s legal and political troubles.

Murphy will receive a gross payment of approximately $49,560 per year from the San Diego City Employees’ Retirement System, which currently has a funding shortfall of at least $1.37 billion as a result of agreements that effectively enhanced benefits for workers but didn’t provide the cash to fund them.

Former Councilmen Michael Zucchet and Ralph Inzunza, who resigned last month after their federal corruption convictions, will receive in gross about $13,441 and $20,895 per year, respectively, from the pension plan. The 35-year-olds will receive about 60 percent of what they would have received annually had they waited until they were 55 to file for retirement.

If City Attorney Mike Aguirre’s legal efforts to declare more than a decades’ worth of pension benefits illegal and void succeeds, the three former lawmakers won’t get a dime from the pension system.

Perhaps more at risk are their former colleagues, who still spend Mondays and Tuesdays in the council chambers. They – along with City Manager Lamont Ewell and mayoral candidate Jerry Sanders, a former police chief – each stand to lose several thousand dollars every year from future pension checks if a court affirms Aguirre’s claim that certain benefits are illegal.

The city attorney has already asked a court to repeal benefits born out of agreements in 1996 and 2002, but Aguirre said he also plans to challenge pension benefits enjoyed by elected officials that were crafted as long as 30 years ago.

In June, Aguirre instructed the city auditor and comptroller to stop paying benefits that he believes were created illegally but to no avail. The city attorney has since won authorization from the City Council, albeit reluctantly, to challenge a sampling of those benefit enhancements in court.

Aguirre said he will, in the coming months, challenge the legality of upgraded benefits and eased requirements that pertain specifically to elected officials – specifically the mayor, council members and the city attorney. A separate challenge could also affect Ewell, who is slated to resign at the end of this calendar year.

When he decides to file suit to repeal benefits for elected officials, Councilman Scott Peters said, Aguirre will have to secure the council’s approval before proceeding.

“I think the city charter is clear that the city attorney needs permission of the City Council to file a lawsuit,” said Peters, an attorney.

Aguirre disagrees, pointing to a judge’s ruling on Tuesday that he claims allows him to bring litigation on his own, such as his lawsuit seeking to turn SDCERS over to a court-appointed receiver.

The possibility remains, however, that council members would have sway over a lawsuit that could squeeze their own personal pensions. Aguirre, while qualifying for a pension at the end of his four-year term under the current rules, has decided not to join the plan, SDCERS spokeswoman Rebecca Wilson said.

Peters said he felt that rolling back benefits from elected officials’ pensions would make it more difficult to attract qualified people to run for office.

“These conditions make it difficult to find good people to run for office, since they have to take a timeout from their career and potentially take a pay cut,” he said.

And take a pay cut Peters and his colleagues would if Aguirre were to succeed in all of his challenges. More than $20,000 could theoretically be shaved off of Deputy Mayor Toni Atkins’ annual gross pension pay, according to an analysis of figures provided by SDCERS. The same applies to Councilman Jim Madaffer.

Several officials wouldn’t qualify for a pension at all.

The two candidates running in the Nov. 8 mayoral election said it’s the only way to resolve the legal and financial troubles stemming from the deficit-ridden retirement system.

“I’d try not to have it interfere (with workers’ pensions), but I’d rather have a solution that works in the best interest of the public,” Councilwoman Donna Frye said.

“It has to be in the best interest of the community to get a ruling on those benefits,” Sanders said. “Whether I lose a percentage point or not is not important compared to the city’s financial viability.”

To qualify for a pension as an elected official – and thereby receive a higher benefit than general city employees – the lawmaker must hold office for four years. Everyday city employees must accrue 10 years of service to qualify for a pension.

Aguirre has issued opinions stating that the city charter orders that the same 10-year standard for vesting pension benefits must be applied to elected officials too, regardless of a 1971 council decision to ease the requirement.

Rolling back the four-year rule for legislators would altogether eliminate the pension rights of five council members – Frye, Peters, Brian Maienschein and Tony Young. Zucchet is also vulnerable under that hypothetical scenario.

Murphy and Inzunza would still qualify under the 10-year vesting rule because they purchased service credits that put them over the hump. Buying service credits allows municipal workers to add years to their tenure with the city of San Diego, which in effect boosts their future pension checks. Murphy and Inzunza would only qualify for a 10-year stint with the city because of service credits they have purchased.

However, Aguirre also plans to challenge the legality of the service credits because employees and officials were allowed to purchase them at a rate heavily subsidized by the city.

Separately, he interprets the city charter to state that these credits cannot be put toward the 10-year vesting standard. Such an interpretation would override a 2002 council vote that changed the municipal code to allow that investment strategy.

Atkins and Madaffer were council aides for almost seven years each, and both reached their 10-year plateaus with the city without the help of service credits during their first term on council. Therefore, neither would be affected by these legal challenges.

Frye and Maienschein have both purchased service credits, but not enough to surpass the 10 years needed to gain pension rights if Aguirre wins his challenge. Young and Peters have not purchased service credits, according to SDCERS records.

In a lawsuit already filed in Superior Court, Aguirre seeks the rollback of between $700 million and $800 million worth of pension benefits by targeting upgrades that were created in 1996 and 2002. He claims it is the only solution for dealing with a deficit that threatens to dominate the city’s annual budget.

Service credits

For example, Madaffer is set to receive about $47,248 annually in gross pension benefits, assuming he finishes his current council term. That figure would be reduced to about $34,056 per year – a difference of more than $13,000 – if Aguirre successfully voids the five years of service Madaffer bought while the rest of the benefits stood.

Ewell is in the process of completing his service credit purchase, retirement officials said.

At least three officials – Ewell, Atkins and Frye – have asked the retirement system whether they need to pay more for their credits or if they should be refunded. Aguirre said he doesn’t believe the cash-starved pension fund can sustain any service credit purchases.

Multiplier for general service and public safety members

The 1996 and 2002 benefit upgrades raised the multiplier for general employees – from 1.45 percent to 2 percent in 1996, and from 2 percent to 2.5 percent in 2002.

For public safety employees such as Sanders, the 1996 agreement boosted the multiplier from 2.22 percent to 2.5 percent. Sanders had already retired before the 2002 agreement, and his pension was not affected by that increase.

Aguirre argues that these benefits were created illegally because money was not set aside to pay for the increases and that pension trustees that approved the upgrades had a conflict of interest because they were also beneficiaries. The accused trustees and their attorneys reiterate that their role on the SDCERS board was necessary under the charter and that state law protects them from conflict of interest charges because their pension votes count as decisions on salary.

Atkins, Madaffer, Young, Zucchet, Inzunza and Sanders all stand to lose thousands of dollars if the multiplier for general and public safety members is rolled back.

For example, Atkins’ annual gross pension checks will amount to about $47,768 if she completes her current term on council. If a court decides to discontinue the 2002 benefits increase, Atkins’ annual pension would drop to $45,175, a decrease of more than $2,500. If both the 1996 and 2002 benefit increases were rolled back, Atkins would theoretically draw $42,322 annually, a decrease of about $5,000.

Aguirre said that the benefits outlined in the elected officials’ retirement plan will be challenged in the months to come, and the implications for council members are significant.

The city manager and police chief are not elected positions, and challenges to the elected officer benefits would not affect Ewell or Sanders.

Also included in his planned lawsuit or lawsuits:

Elected officer multiplier increase

The multiplier, before 2000, was a complex formula that amounted to a figure between 3.12 percent and 3.17 percent for council members and the mayor. The result of the decision to increase benefits was a 3.5 percent multiplier, augmenting current council members’ pension incomes by several thousand dollars a year. Murphy, Zucchet and Inzunza could all potentially be affected as well.

For example, if all Maienschein’s benefits remain at current levels, he will earn about $23,536 annually in gross benefits if he finishes his current council term. Repealing the increase in the pension multiplier would drop his annual gross pension to $21,244, a decrease of more than $2,000.

The council approved applying the 3.5 percent multiplier to former council members in 2002, adding a new list of costs that the city attorney also wants to challenge. Details of how some former lawmakers benefited from this retroactive increase are available here.

Please contact Evan McLaughlin directly at